The S&P 500 may return to levels near its 2022 lows, due to negative Q1 earnings, high stock valuations and a possible recession, according to Comerica Wealth Management’s chief investment officer John Lynch. Investors may price in the recession later this year and the S&P 500 may not return to current levels until 2023, but diversifying portfolios and investing in less susceptible sectors may help.
It seems we’ve all been living in a dreamland, where stock markets only go up and our investments grow like weeds in spring. But friends, that might not be the case for much longer. John Lynch, the chief investment officer at Comerica Wealth Management, is here to rain on our parade with his prediction that the S&P 500 will weaken in the near future, returning to levels near its October 2022 lows of 3,491.
Why the sudden negativity, you ask? Well, it appears that several factors are conspiring to bring about this potential downturn. For one, analysts expect the S&P 500’s first-quarter earnings to be negative for the second straight period. This delightful development can be attributed to rising wage costs, falling consumer demand, and a hawkish Federal Reserve. Additionally, stock valuations relative to bond yields are at historically high levels, making stocks less attractive than bonds.
Don’t go stuffing your mattress with cash just yet, though. Lynch believes that investors will start pricing in a recession later this year and that the S&P 500 will return to current levels by the end of 2023. He’s not alone in his pessimism, either – Morgan Stanley’s Mike Wilson and Societe Generale’s Albert Edwards have both warned that equity risk premiums are in a “death zone”, while heavy-hitters such as Mohamed El-Erian, Jeremy Siegel, and Jeffrey Gundlach have also expressed concerns about a possible recession.
Of course, not all hope is lost. Some believe that a soft-landing scenario, where the Fed successfully reins in inflation and keeps the economy from entering a recession, is still possible. But with multiple indicators pointing towards an economic downturn, it might be wise to prepare for the worst.
So, what do we do in the face of such uncertainty? Well, as your friendly neighborhood business reporter, I suggest diversifying your portfolio and investing in sectors less susceptible to recession. Keep an eye on the market and stay informed – after all, the only thing we can be sure of in the world of stock markets is that nothing is certain. And remember, in the words of the great George Carlin, “It’s a big club, and you ain’t in it.” So stay vigilant and prepare for the worst, because it’s better to be safe than sorry when it comes to your hard-earned money.
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